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Sinopec's Q4 Earnings Surge, Natural Gas Production Expands

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China Petroleum & Chemical Corporation (SNP - Free Report) , also known as Sinopec, reported fourth-quarter 2019 earnings per American Depositary Receipt (ADR) of $1.50. The bottom line was significantly higher than 30 cents per share reported a year ago owing to increased natural gas production and realized prices. Higher sales volumes of refined oil products also boosted profits.

However, revenues decreased 12% year over year to $104,056 million, primarily due to a fall in refining and chemical products’ prices.

 

Reserves

Domestic proved reserves reached 587 million barrels of oil equivalent with reserve replacement ratio of 138.7%.

Operational Performance

Exploration and Production: In 2019, Sinopec’s total crude oil production dipped 1.5% year over year to 284.22 million barrels. Although oil production in the domestic market inched up 0.2% year over year to 249.43 million barrels, overseas volume dropped 12.1% year over year to 34.79 million barrels.

Natural gas volume grew 7.2% year over year to 1,047.78 billion cubic feet in 2019. Also, total oil and gas production rose 1.7% year over year to 458.92 million barrels of oil equivalent.

Operating profit from this segment in 2019 was recorded at RMB 9.3 billion, reflecting a rise of RMB 19.4 billion from the 2018-level. This upside can be primarily attributed to higher natural gas production and realized prices.

Refining: The company’s Refining business recorded refinery throughput of 248.52 million tons (up 1.8% year over year). It also produced 159.99 million tons of petroleum products, representing a 3.4% improvement from the 2018-level.

Segmental operating profit was recorded at RMB 30.6 billion, signalling a RMB 24.2 billion fall from the 2018-level due to a decrease in products’ prices. Importantly, since new projects were initiated and key refining plants were expanded, the company could successfully increase throughput and output of petroleum products. However, since the domestic market was already oversupplied with fuel, the segment’s profit margin took a hit.

Marketing and Distribution: The Marketing and Distribution segment sold 254.95 million tons of refined oil products, depicting a 7.3% year-over-year improvement. Of the total figure, domestic sales volume came in at 184.45 million tons, up 2.3% from the 2018-level.

Average throughput was recorded at 3,992 tons per station in 2019 compared with 3,979 tons in 2018. Operating profit from the segment grossed RMB 29.1 billion, up 24% from the 2018-level.

Chemical: During 2019, the production of ethylene ramped up almost 8.5% year over year to 12,493 thousand tons from 11,512 thousand tons. Also, the production of Synthetic resin was 17,244 thousand tons compared with 15,923 thousand tons in the year-ago period.

Operating profit from the segment was recorded at RMB 17.2 billion, down 36.5% from the 2018-level, affected by a significant decrease in chemical products prices.

Operating Results

The company’s total 2019 operating expenses were RMB 4,759,649 million, higher than RMB 4,739,653 million a year ago. While expenses significantly declined in the four reported segments, the same rose in corporate and others by 7.8% year over year.

Operating profits in 2019 logged RMB 86,198 million, translating to 4.8% growth from the 2018-level.

Capital Expenditure

Capital expenditure in 2019 totaled RMB 147.1 billion. Of this, 61.7 billion yuan was spent on exploration and production projects. Sinopec spent RMB 31.4 billion on the Refining segment while the Chemical segment was allocated with RMB 22.4 billion. The company had set aside RMB 29.6 billion for the Marketing and Distribution segment.

Outlook

The company anticipates that due to the short-term impact of the political and economic turmoil in the global market and coronavirus outbreak, demand for energy and chemical products will remain weak in first-half 2020. Increased supply and low demand growth will weigh on global oil prices. However, in the long run, accumulated demand is expected to rise rapidly. The company intends to minimize the negative impact of the coronavirus pandemic through optimization of business value chain.

The company plans to strengthen capacity building in Shunbei, Tahe and other oilfields. It will likely boost profit-oriented development in its mature oilfields. With reduction in oil prices, the company’s refining business will adopt optimization of utilization rate and production scheduling for better outcomes. It also plans to expedite its low-sulfur bunker fuel projects to grab a plum market share in compliance with the IMO-2020 rule.

The company expects capital expenditures for 2020 to be RMB 143.4 billion, of which, RMB 61.1 billion will be infused into exploration and production activities. Sinopec will focus on production capacity building in Shengli and Northwest crude development projects. Capital spending in the refining segment is expected at RMB 22.4 billion while the same for marketing and distribution will likely be RMB 22 billion. In chemicals segment, the company plans to invest RMB 32.3 billion. It will concentrate on the constructions of Zhongke, Zhenhai and Gulei chemical projects.

Zacks Rank & Stocks to Consider

Sinopec currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the energy sector are Murphy USA Inc. (MUSA - Free Report) , Enphase Energy, Inc. (ENPH - Free Report) and RGC Resources, Inc. (RGCO - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA’s bottom line for 2020 is expected to rise 7.7% year over year.

Enphase Energy’s bottom line for 2020 is expected to rise 33.7% year over year.

RGC Resources’ bottom line for 2020 is expected to rise 14.8% year over year.

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